Understanding the Trade War | Butler Stories
Two Butler professors explain what's going on in the trade relationship between the United States and China.
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Understanding the Trade War

BY Katie Grieze

PUBLISHED ON Aug 09 2019

When China weakens its currency, lowering the yuan’s value in comparison with the U.S. dollar, what exactly does that mean for America? It seems like the move would only damage the Chinese economy, right?

Even if the yuan’s sliding value does hurt China in some ways, says Butler University Professor of Economics Bill Rieber, it could be a strategic play in the ongoing trade war between China and the United States.

“And in the concept of a war,” Rieber says, “no one is really gaining.”

Rieber, an expert in international economics whose research focuses mostly on Asian economies, explains that a weaker Chinese currency means cheaper Chinese products. This seems appealing on the surface—American companies who trade with China can buy more for less money. And the savings trickle all the way down to consumers, who pay less for the final product.

But for businesses selling American-made goods, that competition can be hard to beat. Rieber says products might need to be priced cheaper than they would be otherwise, which essentially ends up lowering the wages of some American workers.

In response, President Donald Trump has placed tariffs on Chinese imports, trying to make these otherwise cheap goods less appealing. But China is playing the same game, Rieber explains. The nation’s recent decision to stop buying U.S. agricultural products threatens a vulnerable part of the American economy, which Rieber says could put a new kind of tension on Trump.

“It may be that [China is] trying to retaliate in those states that were big supporters of President Trump during the election,” he says. “They are trying to hurt agriculture in the Midwest.”

But Su-Mei Ooi, an Associate Professor of Political Science at Butler and an expert in U.S.-China relations, says we should be careful not to make assumptions about China’s adversarial intentions toward the U.S. Within her studies about the ways China is depicted within American political rhetoric, she’s found U.S. politicians and media outlets often villainize China in a way that exacerbates conflict between the two countries.

For example, Ooi’s research has analyzed whether China intentionally devalues its currency to give Chinese exports an unfair advantage and make it impossible for the U.S. to close the trade deficit it has with China. She says American leaders often frame it that way, painting China as “a cheat” in order to justify their own actions in the trade war. In the past, China has devalued the yuan to give Chinese goods a competitive advantage, but Ooi says this no longer holds true.

“There was a time when China was manipulating its currency,” she says, “but that has been long gone. In fact, more recently, economists have claimed that China’s currency is overvalued compared to similar economies.”

That’s because China’s government has been intervening in currency markets, buying and selling currencies in ways that have made the yuan’s value artificially high. This is the very opposite of what they are being accused of now, Ooi says. She explains that the yuan’s recent drop in value was actually an appropriate market response to the new round of U.S. tariffs on Chinese goods.

Villainized ideas about China within “popular imagination” have fueled a lot of unfounded anti-Chinese sentiment among Americans, Ooi says. And that’s what has helped U.S. leaders justify their actions in the trade war.

“There needs to be some kind of justification, right?” she says. “Some kind of rally around the flag effect to motivate people to suck up the costs of this trade war. And I think it’s the use of these kinds of tropes that perpetuate misunderstanding and allow the current administration to do that.”

Ooi explains that this political technique of “othering”—capitalizing on fear of difference to unite supporters—is nothing new. But she says within Trump’s presidency, it’s been a little more blatant, fueling long-held stereotypes about China.

“These are powerful assumptions that we hold that we don’t question,” she says. “‘Oh, of course China is a rival power and must want to dislodge us from our pedestal.’ But this may or may not be true—we are inferring China’s intentions from a deep-seated fear of our own decline.”

 

Media contact:

Katie Grieze

News Content Manager

kgrieze@butler.edu

260-307-3403 (cell)

Understanding the Trade War

Two Butler professors explain what's going on in the trade relationship between the United States and China.